Do You Even Prax, Bro?

If you are a student of the Austrian School of Economics, the odds are you have come across the various objections to the Austrian School’s methodology on a regular basis. Further, if you are an opponent to the Austrian School of Economics, skeptic, or new to economics as a whole, chances are you may have heard these criticisms or may have used some yourself.

As an Austrian, I tend to hypothesize that most of the criticisms stem from the fact that the Austrian School of Economics, while it has been around for sometime, is rather new still to economic thought. This is especially true regarding individuals who could be considered novices to economics, who shrug economics off as a “dismal science”, or are a student of another school.

So today we will be looking at some of the basic objections to this, dare say, up and coming school of thought to hopefully lay them to rest.

The Pythagorean Triangle Won’t Unclog Your Toilet

To start, we will begin with a rather frequent criticism of Austrian Economics. The criticism is quite simple and goes something like this: “Austrian Economics doesn’t solve real world problems”, or “Austrian Economics has never been implemented!” Thus implying that because no nation uses it, it must be “false”.

Regarding the former, it is important to distinguish what economics in general is meant to do. Economics is not meant to solve problems. Economics aims to explain how economic actions of individuals affect the incentives and actions of others. Economics can’t tell you anything is wrong, it can only tell you about the consequences of a given action or policy. Economics does not tell you, for instance, unemployment is bad; it just points out the inevitable consequence of, say, a minimum wage law. Economics explains how the world works, not how it ought to (whether you like it or not). Economics is a study of what is, not of what someone likes or how someone thinks things should be. “Good” or “bad” for a certain person is up to that person, not you. Saying “I believe these people have X rights, and I say this would happen under X conditions” is not economics, it is just describing an ideology. It is important to distinguish the two when discussing economics. It’s like physics in that sense: knowledge empowers you to discover appropriate solutions.

One could argue that by the same token no other school of thought solves problems either. Yes, this is correct. For instance, Keynesian economics presents theories on how to solve problems while ignoring the root cause of the problem itself. However, Austrian Economics shows what caused the problem in the first place. Therefore, what opponents are really complaining about is that Austrian Economics does not tell us how government can make the world a better place. Austrian Economics is a descriptive school of economics, not prescriptive, as in: “if this policy is implemented, X will be higher/lower than it would otherwise have been”. Some people might write this off as useless, but if you were talking about a minimum wage hike, for example, you would probably want to know if it is going to put upward pressure on unemployment.

Now as you are reading this you could be saying: “Hold on, I have read Austrians give prescriptive policy recommendations!” Yes, this is more or less an accurate statement. Using food stamps as an example, Austrians will try to say: “This is what will happen if you cut food stamps” and “this is what will happen if you don’t”. However, that does not mean that Austrians prescribe any particular way or timetable of stopping food stamps. It’s not prescriptive, but it can and does say that if your goal is to feed more poor people, you probably don’t want food stamps as the final and ongoing solution. This is the objective of Austrian economics, to describe the world as it really is, or more specifically, the world as it can only be due to basic laws, just as physics does. How it should be, or even how it will be is something Austrian Economics does not do – it describes the principles that govern its behavior, within its scope. Austrian economics doesn’t produce policy recommendations. It produces qualitative economic predictions. It doesn’t say property taxes are “bad”; it analyzes their effect on prices and other behavior.

Austrian economists tend to recognize that metrics are not accurately enough to allow you to say: “Now you need to raise X. Now you need to lower the X”, or such nonsense. The policy recommendations are not tailored to imaginary measurements and resulting controls, but are general guidelines. For example: “reducing taxes will make the economy more efficient” and “farm subsidies distort price signals, causing more hunger and a weaker agricultural industry.”

Austrian economics merely describes the actual nature of economics. As Steve Horwitz explained: “Its a set of propositions about how markets work; an analytic toolset to allow us to study and interpret society.”[1] All it does is explain things. If you understand economics correctly, you can point out the unintended consequences of the next utopian political scheme. It points out how “trying to solve” the so-called issues create other problems and disrupts natural market mechanisms. It consistently exposes the unintended consequences of a given policy, and shows that the goals of prosperity shared by almost everyone would be better served without that policy. Austrian economics makes clear qualitative analyses of virtually every imaginable policy, regulation, subsidy, etc. What it finds is that policies, regulations, subsidies, and so on create the majority of the so-called problems and issues. Austrians are aware of the unintended consequences of policies ostensibly designed to solve this or that problem, and as such we’re also aware that in most (if not all) of those cases the problem itself is a consequence of a previous intervention. Therefore, we consistently find that government intervention doesn’t bring about its (ostensibly) desired results, as human beings we dislike most of the actual results, so we find ourselves objecting to those interventions on humanitarian grounds. [Austrian] Economics won’t do your dishes, it won’t pay your bills, just like the Pythagorean Triangle will not unclog your toilet.

To address the latter objection, it is true that Austrian Economics has not been “implemented”, but hopefully with the explanation above Austrian economics has been cleared up on how it wouldn’t apply in this case. Even despite this claim, that does not mean that Austrian Economics has not made some significant contributions, such as the theory of marginal utility, along with subjective value, and the Austrian Business Cycle, which has led Austrians to successfully predict and warn everyone of every single economic collapse in American history. One more thing to note is that you can’t really “implement” an economic philosophy. Just as one does not “implement” semiconductor physics in creating a silicon-based computer, but uses that scientific knowledge to inform their decision-making. To say that Austrian economics has not been “implemented” is to conflate the knowledge-seeking scientific inquiry with what people do with the knowledge that they learn (and whether they accept it or not in the first place).

Lastly, for the sake of argument, even if Austrian Economics could be implemented, the fact that a government has not adopted an economic philosophy resembling the Austrian School’s is not necessarily a point in, say, Keynesianism’s favor. Would a government adopt a policy that favors them or favors you? Governments will adopt a policy that grants them the most power and especially the policy that has the flexibility to wage war without upsetting the populace by raising taxes. Increasing the supply of money, of course, does this. Just because governments have not adopted an Austrian point of view, does not mean it is not good for the economy, it typically means it is not good for them.

A “Priority” Reasoning? Huh?

“A priori” is nothing special to economics. It merely refers to knowledge available without or “prior to” experience, from pure reason, the opposite of a posteriori. The relevance of this to Austrian Economics is that the basic principle the theory is founded on is human action, the action axiom, or more simply put that “man acts”. Austrian economics start with “man acts” and deduces logically from there. Austrians observe that you can’t deny that assertion without committing a performative contradiction, and the axiom is thus proved. From there, we can deduce subjective value theory, comparative advantage, diminishing marginal utility, and eventually Austrian business cycle theory. If you can’t refute the action axiom, and you literally can’t, then to take down an Austrian conclusion you have to find the flaw in its deductive logic, which overlooks a crucial point: There is not, even in principle, an empirical observation which could refute Austrian theory, because it doesn’t generate predictions that are falsifiable through observation.

Thus, “man acts” is at the top level – which is not deduced, but is proved via the performative contradiction of denying it. The Austrian definition of action – deliberate action – implies purpose, a goal, and an action being a means to that end. We deduce from this that acting man employs means (via action) to achieve ends (the aim of his action.) From there we can deduce that he will only act if there exists in his mind a future more satisfactory to him than the future he believes will come about without action. Otherwise he wouldn’t act. Only by acting can he bring about that future. From there we say that given many possible ways to improve his situation, he will act to satisfy the most urgently felt uneasiness; from there we can deduce the law of diminishing marginal utility, subjective value, and so on.

That’s a priori knowledge, because we can know it without experience by virtue of the impossibility of denying it without committing a performative contradiction. If sound principles of logic are used to deduce further truths from this irrefutable action axiom, those truths will also be certain.

Some individuals may reject this concept and “a priori” all together because Austrians don’t go out and test it empirically or utilize other approaches such as the scientific method. We will address empirical observations in the next section but first, fortunately, that’s not even a comprehensible statement in the first place because testing means experience and experience means thinking or computing. Therefore, it’s being tested the minute it’s being objected to. It’s typically an expressivist complaint akin to “I don’t like that”. More so, we must remember that those methods are only useful when analyzing data acquired through the senses. The truth of the action axiom is evident upon internal reflection, not from observation. If I attempt to refute it, I demonstrate its truth because, within my own thoughts, my very attempt to refute it is an action. This knowledge of action is therefore certain, not tentative like empirical conclusions in the physical sciences. Simply put, those methods, such as the scientific method, applies to mindless things. People have minds and can learn and so no two situations are every truly alike. There are no constants in human action. Just consider the difference between the scientist applying the scientific method and the subject being studied. The scientist observes, interprets, makes adjustments and repeats or even abandons study. “Man acts” is not a hypothetical statement, and neither are statements derived logically from it. You couldn’t, even if you wanted to, construct an experiment to test the truth of if, any more than you could with “no two straight lines can enclose a space.”

In arguing this we turn to Mises, who states on the science of economics:

“Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, a priori. They are not subject to verification and falsification on the ground of experience and facts. They are both logically and temporally antecedent to any comprehension of historical facts. They are a necessary requirement of any intellectual grasp of historical events.”[2]

There is knowledge we can know to be true just by thinking about it, and it is apodictically true. This is what the entire basis of Austrian economics, the fact that man acts. You don’t need to test this continually, it’s true no matter what location no matter what time, human action is grasped a priori, and from there, being confined to the laws of logic, we deduced the entire system of economics we call Austrian Economics.

This leads to another contention on praxeology’s use of a priori, that it is “pseudo-scientific”, since it does not generate predictions that are falsifiable, as mentioned above. To address this, it depends on how you define “science”, but if math or logic satisfy your definition,then the answer is yes, so must praxeology.

Psychology is a soft science in that you can’t establish direct and inviolable causal relationships among phenomena. You can’t say that if I experienced A in my childhood, then when presented with situation B, I will definitely take action C. However, you can formulate a hypothesis that A promotes C and make observations or conduct experiments to test that hypothesis.

Physics is generally considered the king of the “hard sciences” in that there *are* direct and inviolable causal relationships in the physical universe, such that if you see any deviation from your expectation, you know your expectation – your theory – was just plain wrong. But it’s entirely empirical in that the whole body of theoretical knowledge in that field started with observations, which yielded hypotheses, which were tested and became theories (or didn’t) and new observations are continually used as tests of those theories. As we do that, the certainty about a given theory’s correctness either further approaches 1 (without ever, ever hitting 1) or takes a hit if the observation falsifies the theory.

Praxeology is altogether different. If man acts then [the whole body of Austrian thought unless a logical error has been committed]. This practice doesn’t yield falsifiable predictions. Its statements are not hypothetical and can’t be empirically tested, any more than “no two straight lines can ever enclose a space” can be. They are statements like “other things being equal, an increase in X will bring about an increase in Y” but other things are never equal, or even if they are we can never discover whether they are. Or, another way to say the same thing, “Given an increase in X, Y will be higher than it would otherwise have been” which again is untestable because we don’t know what Y would have been. The defense of these statements is always pure deductive logic from the (literally irrefutable) action axiom. In this way it more closely resembles mathematics than psychology or physics. Falsification is non-absolute – it doesn’t disprove the proposition, it only shows it to be less likely than previously thought. Austrian propositions, if they’re wrong, can be disproven by discovering the flaw in the logic.

Now, as you may be reading this, you may not be wholly convinced of the legitimacy of a priori, you may want an explanation why a performative contradiction is as powerful as we say it is, or maybe simply put some more logical steps that tie the performative contradiction to the specific claim being made. In response to this, the presuppositions can be deconstructed and you will find they either:

(1) Aren’t working with material axioms, or

(2) Aren’t presupposing any “description of a world in which categories of action assume concrete meaning”. Working with material axioms [3] also means not assuming fallacious things like predictive theories of consciousness that rule out subjective value theory. Mises explained the process as, “He who wants to attack a praxeological theorem has to trace it back, step by step, until he reaches a point in which, in the chain of reasoning that resulted in the theorem concerned, a logical error can be unmasked. Nevertheless, if this regressive process of deduction ends at the category of action without having discovered a vicious link in the chain of reasoning, the theorem is fully confirmed. Those positivists who reject such a theorem without having subjected it to this examination are no less foolish than those seventeenth-century astronomers were who refused to look through the telescope that would have shown them that Galileo was right and they were wrong.”[4]

Now, despite the above explanations and defense of a priori reasoning there is still some doubt, some further skepticism, of a priori reasoning being legitimate or useful under the notion that when an Austrian encounters an observation that contradicts their theory – where a “scientist” will revisit his theory – an Austrian has no such obligation and tosses it out as a result of Austrian epistemology. To address that, I would need to ask what an individual would replace it with because it is hard to fathom one science that doesn’t use it. As Alfred Tarski states when explaining model theory – the foundation of all scientific theories – as a priori:

“Every scientific theory is a system of sentences which are accepted as true and which may be called laws or asserted statements (sometimes one says, for short, simply statements). […] these statements follow one another in a definite order, and in accordance with certain principles […]; in view of these principles, the statements are generally accompanied by arguments whose purpose is to demonstrate their truth. Arguments of this kind are referred to as proofs, and the statements established by them are called theorems. Among the terms and symbols occurring in […] theorems and proofs, we distinguish constants and variables”. [5]

This means that if you’re going to challenge the legitimacy of a priori reasoning (whether in economics or elsewhere) then to be consistent you should challenge it everywhere. Everywhere happens to be every science. There is no reason to single out economic theory’s use of it.

Let’s consider the alternate approach – which is more or less a deterministic model, since heuristical gambles aren’t typically sufficient solutions.
With deterministic models, there are two ways to create them. The first way is for a derministic model to not be created but to say it is one a model such as this might make guesses that are accurate but could (or rather, would) unalterably fail, would need updating constantly (and thus be heuristical at best), or over time unsuccessfully predict with any type of useful rate of success. The alternative is to plan the future actions of a person who doesn’t know the future.

“What, then, does Barry mean (and others who make similar statements), when the order generated by market interaction is made comparable to that order which might emerge from an omniscient, designing single mind? If pushed on this question, economists would say that if the designer could somehow know the utility functions of all participants, along with the constraints, such a mind could, by fiat, duplicate precisely the results that would emerge from the process of market adjustment. By implication, individuals are presumed to carry around with them fully determined utility functions, and, in the market, they act always to maximize utilities subject to the constraints they confront. As I have noted elsewhere, however, in this presumed setting, there is no genuine choice behavior on the part of anyone. In this model of market process, the relative efficiency of institutional arrangements allowing for spontaneous adjustment stems solely from the informational aspects.

This emphasis is misleading. Individuals do not act as to maximize utilities described in independently existing functions. They confront genuine choices, and the sequence of decisions taken may be conceptualized, ex post (after the choices), in terms of “as if” functions that are maximized. However, these “as if” functions are, themselves, generated in the choosing process, not separately from such process. If viewed in this perspective, there is no means by which even the most idealized omniscient designer could duplicate the results of voluntary interchange. The potential participants do not know until they enter the process what their own choices will be. From this it follows that it is logically impossible for an omniscient designer to know, unless, of course, we are to preclude individual freedom of will.” -James Buchanan[6]

Nonetheless, to make the claim that Austrians would dismiss an observation that contradicts their theory as meaningless due to epistemology simply misunderstands the goal and mode of a priori reasoning. As explained above, a priori reasoning exists in all sciences, however that is not the point.

Austrians do not reject observations merely because of it conflicting with reasoning based on a priori foundations. No. Such an obvious inconsistency between reality (observation) and something deduced may actually result in an Austrian economist to revisit the chain of deductions from the a priori foundation to the contradiction in an effort to reveal any flaws of reasoning.

However, again, that still is not the point.

The point is that a theory has observations interpreted into them at all times. In addition, all economists – not just Austrians – do this. Nonetheless, a certain amount of economists that are model-based have the additional route of needing their models “tweaked” when encountered with certain galling observations. This tweaking involves a different path to objecting assumptions, chains of deductions, as well as even going as far as to interpret the observation in a context of innumerous perplexing variables.

Yet, if your model must be “tweaked”, even when you encounter an overwhelming margin of interpretation, it goes to show that there is something extremely faulty with the overall groundwork.

Then you have the entire class of economic theories that can hold up to any scrutiny to empirical challenges endlessly. Economists frequently interpret observations in totally conflicting manners, where each theory cannot both be true at once. However, there is no solution to this conflict for each theory to find a place and a meaning for the observation that is entirely consistent with the theory.

Nevertheless, it must be addressed that each such theory does include some base assumptions upon which the whole rests. It does grow into a real problem if those assumptions can’t be established a priori. The best that could be done in the case where no theory has any assumptions that can be secured a priori, would be to hypothesize at the assumptions, examining which ones would be most likely by applying such things as Occam’s Razor. Yet, what one should not attempt is to take the assumptions for granted, nor fail to acknowledge that those assumptions that are unidentified are actually guiding interpretations of observations through a theory bound to those assumptions. Whether the base assumptions are acknowledged or not, the theory is guided by base assumptions, not by observations.

Having a base assumption that is established a priori is something Austrians do, and this is not a great weakness but a significant strength.

“Man acts” is the a priori notion that is encompassed in Austrian economics. Yet, “man acts” is the only proposition a priori that needs to be established as being a priori. For economics, to establish that “man acts” as a valid proposition, then the rest follows suit.

If it does not, then the flaw in reasoning by which the theory is deduced from the assumption “man acts” needs to be revealed. If a priori false, it can be demonstrated by attacking the logic involved in the derivation. Certainly, thereis logical derivation. If it is wrong, then one can explain how it is wrong. Saying “there is no proof your logic is correct” denies the use of logic in deriving true conclusions. Not only is this foolish on the ground that this is precisely what logic is for, it is foolish because theories cannot be derived from random statistical collections in the first place, but always inform the collection of statistics and data. If one can reveal such an error in a common Austrian economic theory and you can handle the flaw in logical tenacity, then Austrians would love nothing more than to hear it. Thus, the criticism is all moot if you can’t spot a flaw in the logic. The action axiom itself irrefutably establishes that any two people discussing it are accurately described by it. Anything which can be logically deduced from it is, by the law of non-contradiction, also applicable to us, no matter how much you dislike that approach to the discovery of knowledge.

Keep in mind however, Austrians will be skeptical, since the theories and chains of reasoning have and continue to be gone over constantly. It is more likely that an Austrian economist can point out an error in an argument that you believed had a flaw in a certain Austrian theory than vice versa. However, this does not mean that one shouldn’t make an attempt.

If an individual merely wants to make the objection, “man doesn’t act”, then there is little point in discussing economics.

Muh Empirics

Another criticism regarding Austrian economics is Austrians view on empirical observation. Usually it is repeated just as frequently as the first criticism that was explained above, but it is generally brought up by those who may be more well-versed in economics, or follow competing schools such as the Neo-classical or Chicago School. Typically, the grievance is that Austrians reject empirical observation, implying Austrian Economics is false because they do not test their theories. Opponents to the Austrian school point to some counter argument that is predicted by a model, which they claim is correct because it is supposedly “empirical”.

Empirical evidence means as much to one economist as to any other, because each one has boundless ability to interpret historical fact into explanations that bolster their own theories. Opponents Austrian Economics would argue that the value in demonstrating improper application of models, or in showing that models are built upon unsound and illogical foundations, is precisely the reason they admonish Austrians for “failing” to use empiricism. We must remember though that all economists discuss empirics, and apply theory to the real world. Austrians on the other hand object to doing the opposite, letting empirical observations inform theory, or pretending it even can. In other words, Austrians do use empirical data to evaluate whether they applied all the relevant aspect of their theories, and whether they may be missing some aspect that needs to be further derived. What they can not do, and what can not be done, is show that “models are built upon unsound and illogical foundations”. Empirical evidence is mere observation. Sound economic theory is required to interpret that which you observe.

As Rothbard states:

“In the sciences of human action [which economics is the study of], on the other hand, it is impossible to test conclusions. There is no laboratory where facts can be isolated and controlled; the “facts” of human history are complex ones, resultants of many causes.These causes can only be isolated by theory, theory that is necessarily a priori to these historical (including statistical) facts.” [7]

Because controlled experimentation is impossible in economics, any interpretation of real world data must make use of a theory of a set of assumptions, either implicit or explicit. The difference, then, between Austrian economics and “empirical” economics is that the Austrians are explicit in their use of carefully considered axioms as the basis of their analysis, while the “empiricists” are themselves blind to the adhoc mish-mash of unexamined assumptions that inform their own interpretations.

Austrians are lectured about empirical observation or what theories like Keynesian, Chicagoans, Neo-classical intend to do. Austrians are aware of the status and nature of such propositions, which is exactly why they are incompatible with economics; economics is the logic of human action, human action and behavior cannot be confined or predicted through empiricist observation. The Austrian School knows socialism won’t work just by logical deduction, where other schools actually think it must be tested first to see if it is really bad or not. The only way to understand human action is to follow the action axiom. Historians, for example, need not follow the action axiom as a theoretical formulation – they have their own methods of studying. The logic of action, honestly, is but one analytical tool to help us expand on the knowledge of human action. The logical categories of action helps us provide a clear frame of what is going on and what is happening, so long as the formulations are occurring in reality at that time. As an empiricist, you will never fail to find what you’re looking for in the data, never fail to validate your hypothesis. If someone finds data that appear to falsify your hypothesis, as he will every single time he wants to, you can never fail to find complicating factors and assign them whatever significance is required to protect your preferred conclusion – not because you are a sloppy thinker, but because there is no consistent way to make this assignment. By relying on formal logic, I can be (and have been) absolutely proven wrong with no recourse to anything. This is not to say man is infallible – but logic is far, far, far more amenable to the discovery of error than empirical observation in the field of economics.

And because of this Austrians are radically different from other schools such as Neo-classicals and the Chicago School.. Even if we reach some of the same conclusions, which is inevitably true, the epistemological difference (which we share with every other surviving school of thought) is quite fundamental. There is no reason to pretend otherwise – not even the hope of becoming one of the cool kids on the block.

Many Austrians have addressed the issue of empirics time and time again. For instance, Walter Block, Senior Fellow at the Mises Institute and author of Defending the Undefendable, speaks of a time when a his former mentor stated “Austrian economics could benefit greatly from developments in empirical economics […”] in written correspondence. Walter Block replied:

“I don’t know whether you remember this or not, but when you were my dissertation advisor at Columbia University, my topic was rent control. I was, presumably, trying to test the usual implications of this law: that it causes rental housing deterioration, reduced investment in residential rental units, shortages, etc. These were the dependent variables in my regression equations. The independent variable was presence of rent control. My observations were cities. I tried to control for a few other things, such as wealth, income, race, etc. Most of the time the sign of my rent control variable was the correct one, indicating consistency between my model and the usual economic analysis of rent control (in which both Austrians and mainstreamers fully concur).

But every once in a while I got the wrong sign for this variable, indicating, if you believed my results, that rent control actually improved the housing situation. On these occasions did you brag to your colleagues that you had this young genius, Block, on your hands, who was in the process of overturning everything we all knew about rent control? Did you urge me to send my earth shaking results to the AER for publication? To ask these questions is to answer them: you did no such thing. Very much to the contrary you said, “Block, go out and do this again until you get it right!” That is what you explicitly said to me. In contrast, what I heard was: “Block, you dummy, go out and do this again until you get it right!” Of course, you were far too polite and supportive to actually say this to me, but I could tell that this was what you were thinking; at least, this is the way I felt, at the time.

So, what was “testing” what? Were my equations really testing the usual supply and demand analysis of rent control, or was the usual supply and demand analysis of rent control testing my econometrics? Obviously, the latter was the case.”[8]

You just aren’t going to be able to find an empirical observation, or collection thereof, which vindicates one theory and fails to vindicate another. There will always be more than enough relevant facts to dig up and point to as the most relevant causal factor, and there’s no way to resolve this quantitative dispute over which of the known facts was most important in bringing about the observed effect. You think you can prove monetary policy is the cure for recessions; I can just as easily prove the recession was caused by ice cream sales or volcanic activity. Empirical analysis can only demonstrate the improper or incomplete application of a model – whether that model be “empirical” or not. The fact that, for instance, unemployment may have gone up in situation A, despite an increase in the minimum wage can never invalidate the analysis involved in wage controls – it can only indicate that other factors were also at work (some form of growth that would have raised wages anyway, most likely). Even it were possible to do experimentation- or even if interpretation of events in the past weren’t guaranteed to yield a validation of almost any possible economic hypothesis and falsifications of all others- these things are as unnecessary for establishing the relationship between prices and the money supply as they are for evaluating the assertion “no two straight lines can enclose a space.” I doubt anyone has ever set out to discover whether this is true by observing the real world, and any attempt to do so would be utterly silly.

There’s almost nowhere mainstream economists haven’t fallen short, but at least when it comes to the Austrian school it’s possible for those errors to be discovered and corrected by others. What does distinguish the Austrians from everybody else: we use logic, and we use it exclusively, so that if one of us is wrong another of us can point out the error and we can easily be corrected. Everybody else uses empirical observation, and unsurprisingly, none of them ever fail to find data that corroborate their theories. This makes the Austrian School unique, because as of now it is the only school of thought where empiricism is not relied upon, where the problem is that you can’t make economic laboratories where complicating factors can be isolated out so the subject at hand can be examined in unadulterated purity. When it comes to economics, I can ask almost any statement and ask that it either be validated or falsified by observation, and neither of those efforts can ever possibly fail. We can observe all day long that event B was preceded by A, but only logic can establish causality, not by observing relations that are temporal.

As Hoppe argues:

“ […] A proposition regarding the relationship between economicevents can never be validated once and for all with certainty.Instead, it is forever subject to the outcome of contingent,future experiences. Such experience might confirm the hypothesis.But this would not prove the hypothesis to be true, since the economic proposition would have used generalterms (in philosophical terminology: universals) in its description of the related events, and thus would apply to anindefinite number of cases or instances, thereby always leaving room for possibly falsifying future experiences. Alla confirmation would prove is that the hypothesis had not yet turned out wrong. On the other hand, the experiencemight falsify the hypothesis. This would surely prove that something was wrong with the hypothesis as it stood. Butit would not prove that the hypothesized relationship between the specified events could never be observed. Itwould merely show that considering and controlling in one’s observations only what up to now had been actuallyaccounted for and controlled, the relationship had not yet shown up. It cannot be ruled out, however, that it mightshow up as soon as some other circumstances have been controlled.“[9]

Therefore, again, if the result fits the prediction, we figure it’s validated even if other explanations are available for the same result, as there always will be. If it doesn’t fit, we can always find an excuse, some complicating factor (it always comes down to an assessment of relevance, which is a quantitative question that can never finally be answered). If all the pertinent factual questions are agreed upon, if our theories are different we’ll assign different relevance to each of those facts and we have no way to resolve those disputes. Therefore, in the end no observation can ever validate one theory or falsify another to anyone’s satisfaction, and no school of thought that teaches otherwise has any real way to correct errors. The problem with empirical observation as a tool for economic analysis is that you and I can look at the same situation with the same agreed-upon set of facts and never be able to resolve a dispute about what caused it, except by discovering which theoretical analysis, if any, is correct.

We’re attempting to do science here, which means first we have to be able to isolate things before we can examine the effects of various events. You can’t say: “Well on earth you never see gravity without air resistance, so I don’t see why critics keep trying to deal with it in a vacuum,” because on the other hand you’re going to watch a feather fall and get your theory of gravity all messed up.

People Aren’t Always Rational!?!

Mises coined the phrase “Human action is purposeful behavior”. Austrians define action as deliberate action, which implies purpose, or a goal, an action that is a means to that end. From this Austrians deduce that acting man employs means (via action) to achieve ends (the goal of his action). From there we can deduce that he will only act if there exists in his mind a future more satisfactory to him than the future he believes will come about without action, or he wouldn’t act. As previously stated, only by acting he can bring about that future. From there, we say that given many possible ways to improve his situation, he will act to satisfy the most urgently felt uneasiness.

An objection to this is that actors (or man) do not always act rationally. All we need to know about human nature is that we act. “Rational” doesn’t describe the action; it describes how the action is selected from among the known possibilities given the subjectively chosen goal. Therefore, I may err in my selection of means to achieve a given end, but I still employ reason for that purpose.

Deliberate action implies purpose, action to bring about some objective. That you have an objective implies that you can imagine a more satisfactory state of affairs than the one you’re in, or the one you believe would come about in the absence of that action. That is, a state of affairs more satisfactory to you. That is, one that better serves your interests.

If you do something deliberately, you by definition do it to serve an objective or goal. It wouldn’t even make sense to ask, “Why else would he act?” other than to serve a goal, because to answer that question would be to name an objective. If I ask, “Why did you do that?” you might say “I didn’t mean to”, or, “It was an accident”, in which case it wasn’t deliberate, and not “action” at all by our definition. Otherwise, you state your purpose because if you acted deliberately, you had a purpose.

“If a man drinks wine and not water I cannot say he is acting irrationally. At most I can say that in his place I would not do so. But his pursuit of happiness is his own business, not mine.” –Ludwig von Mises[10]

Say I go out with my friends to a bar, end up spending too much money, and wind up hung over the next day. From another person’s perspective, this would seem irrational, yes? Well, no. At best, the observing party can only say they would not have done this, as Mises states. When we have an end in mind and utilize resources towards this end, we are being rational, regardless of the end or means. Rational means purposeful, nothing more. So, we could be incredibly hasty in our actions and constantly thinking them through poorly, but since we are using our resources to attain a certain goal, we are by Mises’ definition “rational”. I do have an end in mind; perhaps I like to drink, perhaps I want to meet an attractive woman, perhaps I just want to be around my friends. Thus, my actions are rational, based upon my subjective preferences.

“Rational” in mainstream economics is different than rational in Austrian economics. “Rational” in Austrian terms simply means “purposeful behavior” as contrasted by reactive behavior or unconscious behavior.

In making this point, Mises writes:

Human action is necessarily always rational. The term ‘rational action’ is therefore pleonastic and must be rejected as such. When applied to the ultimate ends of action, the terms rational and irrational are inappropriate and meaningless. The ultimate end of action is always the satisfaction of some desires of the acting man.[11]

Mises deals with this in great depth and conclusively, along with Rothbard who wrote:

“[…]Human action, on the other hand, can be meaningfully interpreted by other men, for it is governed by a certain purpose that the actor has in view. The purpose of a man’s act is his end; the desire to achieve this end is the man’s motive for instituting the action.

All human beings act by virtue of their existence and their nature as human beings. We could not conceive of human beings who do not act purposefully, who have no ends in view that they desire and attempt to attain. Things that did not act, that did not behave purposefully, would no longer be classified as human.”[12]

Whether men or actions “are rational” isn’t even a sensible question. Do men employ reason? Yes. Are other factors besides reason used which impact their choices? Obviously. Does that mean men are “irrational”? No.

An objection to the idea that man is always rational could be that rational does not mean ‘purposeful.’ To some, rational behavior is behavior guided by conscious reasoning, by logic and fact, not emotion. Thought is different than emotion. Purposeful behavior is often the result of an emotional, not rational process. Emotion is inescapable. That’s their stipulated definition, not Mises’. If ones goal is to, say, win the affection of someone you have affection for, you are acting rationally yet emotion is clearly in play.

We must also remember that if rational means purposeful, then we don’t need a new word, at least among people trying to be clear and specific with their nomenclature. No, “rational” means guided by the use of reason. Mises deals extensively, even exhaustively, with this. Men have ends, subjectively chosen, always. Perhaps psychologists can elaborate on the basis for these ends, but economists have no reason to care about that basis. People want what they want, and reason is not involved in that selection. The question is, how best to achieve those ends with a minimal sacrifice of other ends? There we always utilize reason. That’s an error- prone process, but we always attempt to reason our way to the means most suitable to our ends. One cannot do anything but select goals and choose means to attain them. Rationality is the use of logic and reason, irrelevant of the validity of the conclusions.

To elaborate more, say we have a man going to work. Now assuming he wants to keep his job, as observers, we can predict how this man will get to work; he will take the subway, bus, or drive in one of the most direct routes to get there. Seeing how he wants to keep his job, we could rule out the other means of getting to work that fall under “irrational,” such as walking in reverse around the globe, hitchhiking, or skipping there while stopping every ten feet to spin on his head for a minute. However, even if we did observe him doing one of these irrational actions, does that automatically mean he is being irrational? No way. We don’t know the ends he wishes to achieve so we should never assume so. In this case, his end goal may be to get fired.

Over the span of time, out and out irrational behavior gets taken care of by evolution. As those who behave rationally and achieve desirable ends are more likely to prosper and pass on their genes while those who behave in an actual irrational manner are less likely to achieve their ends, less likely to prosper, and less likely to pass on their genetic material.

If individual actors aren’t the best judge, then the individual actors that say they aren’t either. Thus, you are caught in a vicious circle. If I am not the best judge of what is the most rational behavior for myself, then how can another person – a person who has the same failing himself – be any better? How can this be distinguished by yet more people? If Person A cannot judge the rationality of his action, no other person can either. A third party cannot really judge what is in my own “best” interests, or what is “irrational”. The fact that I consider your action to be in contradiction with what I think your interests should be, or what I think you should rationally do to achieve your goals, does not mean anything whatsoever. Part of the problem is a core misunderstanding of rationality on the part of various individuals as “irrational” action, according to some objective standard. This is not accurate. Rationality is simply the use of reason to select means to achieve goals. Whether these goals or means are “irrational” is irrelevant. All people are, by definition, rational thinkers. Anyone denying this is caught in performative contradiction and might as well be saying, “I am dead”.

Lastly, self-interest does not say one acts in one’s “best” interests according to some objective standard. It says that one acts first to achieve the most important goal according to subjective determinations. As such, one cannot logically say that another is not acting this way.

Austrians and Math:

The next criticism regarding the Austrian School of Economics is that Austrians reject math and thus come off dogmatic, or merely use math to justify their ideology. Is this true? Do Austrians reject math? Well, mathematics is indeed powerful, but there’s also a point where understanding is exceeded by obfuscation. Unfortunately, mainstream economics has taken it upon itself to completely conceal what’s being said, which leads to physicists and the like (that usually need to use math) to fling insults of “pseudoscience” at Austrians. The Austrian idea of economics, on the contrary, accepts intellectual humility.

Critics should not dismiss Austrians so quickly on this basis of “rejecting math” though. Most Austrian economists (if not even all) understand math and conventional economic theory for the simple reason that, being economists, they were force-fed this stuff during their training at university. For instance, Rothbard, who had a degree in math states:

“Since knowledge in physics is never certain and absolute, positivists can never understand how economists can arrive at certain truths; therefore they accuse economists of being “a priori” and “dogmatic”. Similarly, cause in physics tends to be fragile, and positivists have tended to replace the concept of cause by one of “mutual determination”. Mathematical equations are uniquely suited to depicting a state of mutual determination of factors, rather than singly determined cause and effect relations. Hence, again, mathematics are singularly suitable for physics.

I have grave philosophic doubts as to whether the concept of cause can really be expunged from physics. But whether or not it can, it certainly cannot be from economics. For in economics, the cause is known from the beginning — human action using means directed towards ends. From this we can deduce singly determined effects, not mutually determined equations. This is another reason that mathematics is uniquely unsuited to economics.” [13]

Second, quite a number of Austrian economists didn’t start out that way and converted at some stage during their career. In something like physics, a mathematical model can be shown to be false with an experiment or series of experiments. The problem with economics is that the experiments and evidence is always – and can only be – in the past. Economists have developed the illusion that they can use models that were shown to fit with the data in hindsight as a tool for predicting the future.

Third, Austrians did already provide ample epistemological discussions about why math is not suitable to model any human action at all. Mathematical models cannot be used in economics because subjective preference cannot ever be modeled well enough to make any accurate conclusions about an economy. People are changing preferences all the time. If you could somehow model human interactions perfectly, all you would learn is that any decision you make for those people based on your perfect knowledge would be identical to the decisions those people would already make.

Fourth, they fully recognize that there are indeed a lot of “ifs,” which makes modeling or predicting future behavior more or less impossible, especially if it is done on the basis of arbitrary historical data, with the additional difficulty of including all the variables that influenced historic events (especially the motivation behind certain actions). Economics, when undertaken properly, is a science of human action. In human action, there are no quantitative constants. Any formula you try to throw at it, therefore, is just something you made up and are not going to work out. If by sheer luck some number comes out tomorrow that vindicates your formula, next week it won’t do it again, because human beings are not protons. Mathematical models can’t work to determine policy, because mathematical models can never be as accurate in determining what people desire more than those people can determine such themselves.

To use math would, in most cases, be that you are able to definitively measure something, but when it comes to human action, as Mises put it, there are no fixed points, no fixed correlations that can be used as a yardstick. Even the relatively simple task of “measuring inflation” is forever trapped in an arbitrary world of the observer’s subjective viewpoint, not some objective measurement for all:

“The pretentious solemnity which statisticians and statistical bureaus display in computing indexes of purchasing power and cost of living is out of place. These index numbers are at best rather crude and inaccurate illustrations of changes which have occurred. In periods of slow alterations in the relation between the supply of and the demand for money they do not convey any information at all. In periods of inflation and consequently of sharp price changes they provide a rough image of events which every individual experiences in his daily life. A judicious housewife knows much more about price changes as far as they affect her own household than the statistical averages can tell. She has little use for computations disregarding changes both in quality and in the amount of goods which she is able or permitted to buy at the prices entering into the computation. If she “measures” the changes for her personal appreciation by taking the prices of only two or three commodities as a yardstick, she is no less “scientific” and no more arbitrary than the sophisticated mathematicians in choosing their methods for the manipulation of the data of the market.”[14]

In a way, we all use “math” in making our own determination. It isn’t that “math” is bad. However, the real question is whether or not what we are discovering is an objective truth.

It’s not that Austrians don’t believe math is suitable either, it’s that Austrians recognize that economics is a soft science, far too imprecise for equations to make accurate, or even useful, predictions.

As Hayek explained in The Counter Revolution of Science, hard sciences use a specific set of strict rules and controls, trying to eliminate the human factor, while economics, psychology, sociology, et cetera, all specifically are attempting to understand that human factor. Instead of trying to hide human action and motivation, those are central to their disciplines. Those soft sciences, therefore, should not engage in a pretense of knowledge, where they affect precision and certainty with their metrics and math, when it’s actually somewhat worse than flipping a coin.

Hayek also clarifies this further in his UCLA interviews in which he speaks multiple times on math:

“[…] I limit the possible achievement of economics to the explanation of a type–One of my friends has explained it as a purely algebraic theory[…] you get an algebraic formula without the constants being put in. Just as you have a formula for, say, a hyperbola; if you haven’t got the constants set in, you don’t know what the shape of the hyperbola is–all you know is it’s a hyperbola. So I can say it will be a certain type of pattern, but what specific quantitative dimensions it will have, I cannot predict, because for that I would have to have more information than anybody actually has.”[16]

One of the biggest problems is assuming that any mathematical model can ever make accurate predictions about future human behavior. There are far too many factors that go into the market, and any of these could change at any given time. We can make observations about any given moment, but does our observation of it influence people’s attitudes and thus future outcomes? If we understand basic patterns we can say what is happening – for example, identifying a bubble – but we cannot say exactly when this bubble will pop, how long prices will rise, which markets will be affected, etc.

Whether it is on the micro level or the macro level, economics studies human behavior, human reasoning in a world with scarce resources, limited time, and unlimited wants. Economics is a social science, not a math class. Humans have the ability to learn and adapt, while numbers do not. A number is always the same number next week and twenty years from now. Learning is what separates a human actor from a proton. Formulas and numbers are not subject to change whereas we are.

Because Statistics:

“Statistics is a method for the presentation of historical facts concerning prices and other relevant data of human action. It is not economics and cannot produce economic theorems and theories. The statistics of prices is economic history.”-Ludwig von Mises[17]

How many of you reading have been in a discussion on economics where the other individual throws out statistics to validate his or her claim? Depending on the topic – for example, minimum wage – this happens many times. Since I have studied Austrian Economics there is a saying I have been fond regarding statistics which goes: Austrians have strong words for those who use statistical analysis without explaining qualitative, cause-effect explanations. So, what is the Austrians view on statistics? To summarize, Austrian economists reject empirical statistical methods as tools applicable to economics, saying that while it is appropriate in the natural sciences where causal factors can be isolated in laboratory conditions, the actions of human beings are far too complex for this “numerical” treatment as passive non-adaptive subjects. Instead, one should isolate the logical processes of human action.

All you can hope to establish with statistical analysis is correlation, and in the real world even that is a great feat in the face of so many complicating factors. But even if a correlation is discovered consistent enough to imply a likely causal relationship, the direction of the causal arrow still needs to be determined, and each of its endpoints. That is, you can’t hope to discover via this analysis whether a later event was caused by the earlier one, or whether they are both caused by a third factor.

In addition, it doesn’t even begin to expose the problem. Collecting all the relevant data is indeed a difficult undertaking. But then you face the task of assigning the appropriate relevance to each fact, and this is more than difficult. You will necessarily do this according to whatever model you’re using to analyze it, and this is why the data are ultimately useless at informing theory. Theory precedes understanding, understanding of “the data” that is. The data cannot precede theory, nor can understanding be derived from “the data” sans theory. To do either is to work in the shadow of assumptions and biases you have not acknowledged and which will lead you blind.

Austrian economics works on first principles, cause and effect. You give me statistics, and I can give one or more reasons, causal factors that which would impact those statistics. The quantitative relevance of each factor is unknowable, however. For instance, if you were to show me that unemployment has gone up, I might talk about minimum wage laws, payroll taxes, regime uncertainty, and so on. Your response may include outsourcing, cash hoarding, etc. However, there’s nothing in the statistics to let this dispute be resolved. Only theory can establish a causal link between two (real or hypothetical) economic observations. However, more importantly, the only way to adopt these points meaningfully is to use deductive axiom(s) that explain why those factors matter. Arguments against Austrian Economics have to attack the logical basis behind its corollaries, rather than attacking straw arguments and misrepresentations.

At the same time, you might say “Austrian Fail! Minimum wage went up and unemployment went down!” In which case you’ve misunderstood Austrian theory: Austrians don’t claim increasing the minimum wage will cause unemployment to go up, only that increasing minimum wage will cause unemployment to be higher than it would otherwise have been, and that unemployment is affected by other factors.

Austrians would argue against increasing the minimum wage because praxeology tells them future unemployment with a higher minimum wage will be greater than future unemployment with a lower minimum wage, not because they predict future unemployment rates to rise as a result of the increase, other things being equal. You can never observe both of these states because only one will occur in reality. We must rely on the deductive logic of action to figure out the proper course.

Statistics are simply data points. They aren’t very good ones, either, as any comparison of them relies on the assumption they aren’t “massaged” to fit a narrative, nor do the situations differ that are being compared. In other words, if I have a situation where unemployment rises, this is a fact to be explained, not a fact that proves anything. Most other schools of thought fall into a correlation=causation fallacy here, or a post hoc ergo propter hoc fallacy. The Austrian school, in contrast, starts with deducing the laws of economics logically, and then proceeding to explain events. Only with the natural sciences, where controlled experiments exist and are repeatable (and assumptions of constancy are introduced), can hypothetical natural laws be deduced from data. There is no “control set” with human beings; only deduction from true axioms, like the action axiom, can lead to knowledge of human behavior. You can’t say Y happened after X therefore because of it, but that’s exactly what every other school of thought does, while we sit here explaining the actual, logical causal relationships.

How Many Austrians Does it Take to Screw in a Light Bulb?

Answer: Austrians don’t make quantitative predictions. You may have heard this joke. What is a quantitative prediction, and why don’t Austrians make them? Well, rather than define what one is, let us illustrate. A quantitative prediction would look like “If the minimum wage is increased by 2$, unemployment will increase by n%”. Where Austrians say: “If you increase the minimum wage, unemployment will be higher than it would otherwise have been”. As to the why of Austrians not making them, quantitative predictions involve assumptions of mathematical constancy that are not realistic. Not to mention the hubris of making assumptions regarding the value scales of millions of people simultaneously. To know the quantitative outcome of some economic action is frankly nonsensical – all you can really know is the causal link that if you do A, then the result will be B. The economy cannot be predicted quantitatively. We can, logically, predict whether and in which direction a given event will apply pressure on a given metric, i.e., prices. The formulas of econometricists try to predict the values of those metrics in the future, and they’re wasting their time along with our prosperity.

Regarding Austrians though, no Austrian prediction – that is, a prediction derived from the Austrian model, versus a prediction made by somebody who calls himself an Austrian – has ever been wrong. There is no trick here, just the observation that no quantitative predictions can be made through economic analysis, because economics is a study of human action wherein there are no quantitative constants.

“Praxeological knowledge makes it possible to predict with apodictic certainty the outcome of various modes of action. But, of course, such prediction can never imply anything regarding quantitative matters. Quantitative problems are in the field of human action open [p. 118] to no other elucidation than that by understanding.

We can predict, as will be shown later, that–other things being equal–a fall in the demand for a will result in a drop in the price ofa. But we cannot predict the extent of this drop. This question can be answered only by understanding.”-Ludwig von Mises[18]

So you may be asking right now: “So Austrians do make predictions then?” Sure we do – at least qualitative ones. It’s not exactly predicting the future, though. It’s one thing to be able to say that with increasing minimum wage unemployment will be higher than otherwise. It’s quite another to say that it will go up, let alone by how much. If the minimum wage was suddenly increased to $45, saying it would go up is a pretty safe, but only because it’s pretty safe to say such a dire change would be enough to overcome other factors putting pressure in the opposite direction. However, the ability to do that rarely comes in handy, because economic policy seldom takes big turns like that. Qualitative predictions are useful, or being an Austrian would be silly. Fallible but non-arbitrary quantitative predictions are possible, but economics is of no use there. This is what speculation is for, and why speculators usually specialize in a particular market when the ability to think you know something before someone else is useful. However, even there, quantitative predictions are nearly ultimately impossible with any real accuracy, which works because qualitative answers are all that are needed in this area. A price will go up, or it will go down, in the face of some new development.

Now what this has to do with the joke and one reason it is funny (if you are a nerdy Austrian like me) is that to be able to answer it is not an accomplishment in economics. In other words, Austrians could do just as well as anyone else, because Austrian theory does not apply here. Even “how much capital does it take to start up a coffee shop?” is a question for entrepreneurs, not economists. Even entrepreneurs don’t generally do that though. They don’t have to. They want to know if a price will “go up” or “go down”, not if the price would be $42.67. You don’t need to know that commodity X will be up 4.7% next week; you only need to know that it will indeed go up. In addition, if you could do even that consistently, you’d be a billionaire by the end of the year. To be a successful speculator, you only need to be right more often than you’re wrong on the “up or down?” question, and when you get it wrong you still have a chance to wait and see if you become right later.

However, to be fair, one may argue that predicting human behavior is possible. Let us assume that a coffee drinker goes to the same coffee shop, orders the same drink every day, and goes to the same place on his lunch break. Aha! Austrian fail! This is where we need to distinguish between speculation and economics. Again, this is merely speculation.

To distinguish on what speculation and entrepreneurship is, we look to Rothbard once again:

“Entrepreneurship is also the dominant characteristic of buyers and sellers who act speculatively, who specialize in anticipating higher or lower prices in the future. Their entire action consists in attempts to anticipate future market prices, and their success depends on how accurate or erroneous their forecasts are. Since, as was seen above, correct speculation quickens the movement toward equilibrium, and erroneous speculation tends to correct itself, the activity of these speculators tends to hasten the arrival of an equilibrium position.

The direct users of a good must also anticipate their desires for a good when they purchase it. At the time of purchase, their actual use of a good will be at some date in the future, even if in the very near future. The position of the good on their value scales is an estimate of its expected future value in these periods, discounted by time preferences. It is very possible for the buyer to make an erroneous forecast of the value of the good to him in the future, and the more durable the good, the greater the likelihood of error. Thus, it is more likely that the buyer of a house will be in error in forecasting his own future valuation than the buyer of strawberries. Hence, entrepreneurship is also a feature of the buyer’s activity—even in direct use. However, in the case of specialized producers, entrepreneurship takes the form of estimating other people’s future wants, and this is obvi­ously a far more difficult and challenging task than forecasting one’s own valuations.” [19]

Economics is the study of human action as it relates to material scarcity. Speculators do not contribute to economic theory, and apart from the extreme basics of the effects of supply and demand on prices, which everybody knows, they don’t use those theories either. They think they know something everybody else doesn’t yet know about some condition that will affect supply and/or demand, and act accordingly. With their specialized knowledge of the particular markets in which they work, speculators make money on quantitative predictions all the time. This is not a feat of economics. Let’s say you spot a great investment. Congratulations, this is a feat of entrepreneurial speculation, not of economics. Speculators or entrepreneurs are well advised to become experts in the specific market they are dealing with, to identify good opportunities for profit, be it unexploited or under-exploited. Economists (as economists) don’t do this. Markets in general are what economists theorize on. Specific markets are for entrepreneurs. However, entrepreneurship, or speculation isn’t even applied economics. You could have vast knowledge of economics that is near useless to you as an entrepreneur. The skills required for each task are quite separate from each other. Speculators do analysis of a specific market, the market as a whole is done by economists. If you have an equation you think will make you money, go right ahead. Maybe it sometimes will. If you think it’s “correct”, and it will always make you money, it shouldn’t take you long to become the richest man who ever lived. However, that is a rare feat to accomplish.

Wrap up

In conclusion, one could write a whole book about the things covered here because Austrian Economics is something that cannot be learned in one article. In the spirit of humility, many prominent Austrians have covered what has been covered here and have laid the same objections to rest. The goal here was to do the same, yet in a manner that was easy to understand to the newcomer of economics. Since Austrian Economics is a school of thought that is relatively unknown, it is encouraged for any to look into some of its foundational authors, come to understand that not all knowledge is hypothetical either. Austrian Economics has more or less exploded onto the scene as of recent years and hopefully can be used as a tool as to the best way to understand economics: By starting with individual human action in a free market, a baseline against which to examine the effects of, say, political interference with that system. Economics – as distinct from finance or being an entrepreneur, and so on – in day-to-day decisions isn’t especially useful, and probably wouldn’t be useful at all in a free market. I discuss it in hopes of persuading individuals to look beyond politics for the solutions to social problems, and Austrian economics is a great tool in achieving this end. Subjectively, of course.

[2] Generally, material axioms presuppose a correspondence with reality and leave open the possibility of later disproof or revision. Euclid thought his geometry corresponded to reality. Other words for ‘material’: fallible, concrete, Aristotelian. This is basically what Hoppe means when he states, “not in the sense that […] one would have to be immediately aware of them or that their truth depends on a psychological feeling of conviction”, and, “[…]there are only bodily movements to be observed but no such thing as actions”. Material axioms have to be constructed from ““a description of a world in which categories of action assume concrete meaning”. [Economic Science and the Austrian Method by Hans-Hermann Hoppe].
[3] Human Action, Chapter II. The Epistemological Problems of the Sciences of Human Action, 1. Praxeology and History
[4] The Ultimate Foundation of Economic Science, Chapter 4 Certainty and Uncertainty, 9. The Examination of Praxeological Theorems
[5] Introduction to Logic and to the Methodology of the Deductive Sciences by Alfred Tarski, Section I On the Use of Variables, Chapter 1 Constants and Variables.
[6] James M. Buchanan, “Order Defined in the Process of its Emergence”

I think Austrian economics has great insights, and despite your insult to the contrary on a different thread/post, I am well-versed in Austrian economics, but I think Austrians have far too much confidence in Austrian economics. There’s a hubris and arrogance around this notion of “hey, I start with something that is provably true and thus everything that follows from it is gospel and cannot be questioned” that is unjustified and smacks of the absolutism of all of the other schools of economic and political thought that we consider at odds with us. We need to do better than them, not just “different”.

Let’s start at the beginning: “Man Acts”. Look, you can have a “proof” unless your terms are precisely defined. What is “man”? Can we define “acts”? Are we saying that nothing else “acts”? Are we saying that that is the *only* thing man does? Etc, etc. (Imagine a geometric proof in which you just said “circles are round”: who would accept that as a proof without a whole lot of precise definitions?)

“Austrians observe that you can’t deny that assertion without committing a performative contradiction, and the axiom is thus proved.” These kinds of prestidigitation are cute, but they don’t work, e.g. Argumentation Ethics. I don’t need to deny it. I don’t need to deny that God exists, my denial or not does not change whether she does. I simply adopt a different model.

That’s the thing about language, logic, and all products of intelligence: they are *models*. None are “right” or “wrong”, they just have different accuracies in different situations. Logic itself is just a model. How do you know logic “works”? You can’t prove that logic works *with logic*, because that’s circular. We know logic “works” from empirical observation: logic allows us to predict and control reality pretty damned well in a lot of cases (it doesn’t work well sometimes, e.g. if I have an apple and I take a bite out of it, is it still an apple? What about two bites? How many bites until it’s not an “apple”? This isn’t arguing anything about the nature of appleness, it’s simply pointing out a case where this application of logic doesn’t model the situation particularly well, even while “apple” is a great logical concept for many other tasks).

This means that logic itself is an empirical tool, so the whole notion that “apriori reasoning” is somehow different than empiricism is broken. And unnecessary.

Your comment would be more compelling if Austrians hadn’t answered it an infinite amount of times already, which is conflicting to your “I think Austrian economics has great insights, and despite your insult to the contrary on a different thread/post, I am well-versed in Austrian economics” statement.

There are really only two parts in your comment you said anything that touches on anything I wrote.

““Man Acts”. Look, you can have a “proof” unless your terms are precisely defined. What is “man”? Can we define “acts”? Are we saying that nothing else “acts”? Are we saying that that is the *only* thing man does? Etc, etc.”

Austrians don’t even have to know that man exists prior to proving that “man acts”. Any real or hypothetical entity capable of denying that he/she/it acts, is proven to be an actor before existence is even an issue. If a Martian could deny that it acts, it’s an actor. If a 23rd century AI did it, same thing. Everything deduced from that axiom, which is to say the entire body of Austrian economic thought, is valid for any real or hypothetical race of actors. The fact that man exists and is a race of actors only makes the theory useful. If no actors existed, it would still be correct, just not very useful.
By analogy, triangles *don’t even* exist in the real world, and trigonometry is correct. If they did exist, or if we apply them to real-world approximations of triangles, as we do, no such observation could ever falsify the propositions of trigonometry, which are proved without ever having a triangle on hand to poke at.

“How do you know logic “works”? You can’t prove that logic works *with logic*, because that’s circular. We know logic “works” from […..]empirical tool, so the whole notion that “apriori reasoning” is somehow different than empiricism is broken. And unnecessary.”

Falsification is non-absolute – it doesn’t disprove the proposition, it only shows it to be less likely than previously thought. Austrian propositions, if they’re wrong, can be disproven by discovering the flaw in the logic. Logic is not always correct, but if it is in error, then it can be logically refuted. Empirical “evidence” that is simply manipulated, made-up statistical measures that correlate for some time and then don’t anymore (but we’ll not look at that part, because reasons) are not knowledge of any form.

If a priori is false, it can be demonstrated by attacking the logic involved in the derivation. Certainly, thereis logical derivation. If it is wrong, then one can explain how it is wrong. Saying “there is no proof your logic is correct” denies the use of logic in deriving true conclusions. Not only is this foolish on the ground that this is precisely what logic is for, it is foolish because theories cannot be derived from random statistical collections in the first place, but always inform the collection of statistics and data. If one can reveal such an error in a common Austrian economic theory and you can handle the flaw in logical tenacity, then Austrians would love nothing more than to hear it. Thus, the criticism is all moot if you can’t spot a flaw in the logic. The action axiom itself irrefutably establishes that any two people discussing it are accurately described by it. Anything which can be logically deduced from it is, by the law of non-contradiction, also applicable to us, no matter how much you dislike that approach to the discovery of knowledge.

Keep in mind however, Austrians will be skeptical, since the theories and chains of reasoning have and continue to be gone over constantly. It is more likely that an Austrian economist can point out an error in an argument that you believed had a flaw in a certain Austrian theory than vice versa. However, this does not mean that one shouldn’t make an attempt.

If an individual merely wants to make the objection, “man doesn’t act”, then there is little point in discussing economics.

“So I will leave it at that.” You act, but you don’t appear to act according to your own predictions of how you will act, since you did not in fact “leave it at that”. But ok.

“Any real or hypothetical entity capable of denying that he/she/it acts, is proven to be an actor before existence is even an issue”. Hmm. You said that the entity must demonstrate that they act, but now you’ve changed this to some estimate that you apparently get to make that they are “capable” of something. It seems like you have morphed a little unfairly here. Nonetheless I will this is the spirit of the question I asked: not only “man” acts, (You have yet to define “man”. Is a fetus both a man and an actor? A zygote? But you’re *sure* this is a binary quality, not a grey one, this ability to act? So there is some magical nanosecond when the zygote turns from a non actor into an actor?) other things could “act”, though I’ll note you’ve given nothing that we currently understand. Does a dog act?

I’d still like an answer to the question: does “man” *only* act? Or can “man” sometimes affect the physical world around us in ways that aren’t “acting”? Is every breath an “act”? Every heartbeat? If they are acts for “man”, why not for gerbils? If they aren’t “acts” for man and yet they can have a causal effect on the world, then doesn’t it follow that they can have a causal effect on other “men”? And yet, that wouldn’t be accounted for by Austrian economics, right, since they weren’t “acts”?

“Everything deduced from that axiom, which is to say the entire body of Austrian economic thought, is valid for any real or hypothetical race of actors.” I’ll agree with half of that statement: it is valid for the hypothetical actors (I choose not to use the term “race” for reasons outside of this article). Why? Because hypothetical actors are abstract concepts, as are “axioms” and any model such as “actors acting”. Where it breaks down is in its application to the real world: abstractions are inventions that we have created to allow us to predict and control reality. They are not “real”. All of what you say in this thread about logic applies only to these abstractions; but the hubris and arrogance is in realizing that these abstractions do not map perfectly to the real world, and so neither can their conclusions. If the models do a good job of modeling reality, then the conclusions of the model are most likely pretty good, which is why I do pay attention to the conclusions of Austrian economics and say that they have good insights. But I also temper that like I would the result of any model, say, a computer model of the weather: they can be better and worse, but even the best I realize will have some error and I will factor that in to my thinking. “Actors acting” is a good model, I work with it all the time. It’s just not a *proof*, not when applied to the real world. The problem isn’t saying that there are logical deductions that can be made with, as you said,. correct application of the rules of logic; the problem is in then interpreting that as a statement *about reality*. You even kind of get this:

“By analogy, triangles *don’t even* exist in the real world, and trigonometry is correct. If they did exist, or if we apply them to real-world approximations of triangles, as we do, no such observation could ever falsify the propositions of trigonometry, which are proved without ever having a triangle on hand to poke at.” Yes, exactly: there is no such thing in the real world as a “triangle”. A “triangle” is a model, and we can make all sorts of logical statements about triangles which can be proven, but they still are statements *about the abstraction*, not about reality. Triangles are very useful models, as they have proven empirically over time as people have been able to use them to predict and control reality quite well in many cases. On the other hand, say, if you want to predict what 3 pieces of wood that are formed into what you model as a “triangle” look like under an electron microscope, you’ll do a horrible job, not because the “logic” is wrong, but because the model applies well at a certain scale and much worse at other scales.

Likewise, Austrian economics has problem spaces that it models very well and others that it does not model as well. Scale is certainly part of that: the insights of Austrian economics are much more useful at macro scales (and some are only even formulated at the scale, e.g. Austrian business cycle theory certainly does not apply in the economy composed of my household members, say).

All I’m suggesting is a little humility. Instead of walking around like we are the ones with “the proof” and everyone else is a moron, I’m suggesting we realize that our economics has some strengths and some weaknesses, as do all models, and that we offer up our insights to others as that: strong insights, not as arrogant objective “proofs”. Down that path lies the calls for genocide by Objectivism, the madness of believing that one has “proven” God’s existence ala Plantinga and all of the ills that follow from that, the silly claims that libertarianism must be the only acceptable political philosophy ala Argumentation Ethics, etc. The world is greys, not blacks and whites; black and white is a model of a messier grey world, but it doesn’t replace the real world and the greys are still there.

BTW, I am interested, not in a debating way, just as a reaction: have you ever found it somewhat “inconsistent” that Austrian economics is based on the notion of *subjective* valuation, and yet many Austrians are focused so hard on so-called “objective” reasoning? More and more over the last couple of years I’ve found this a strange thing. Hardcore apriori folks (like yourself I’m inferring) will tie themselves up in knots to “derive” libertarian political philosophy as an “objective” truth, all with an underlying assumption that valuation is completely subjective. Why isn’t it a sufficient starting point to say “I subjectively prefer libertarian political philosophy?” In a truly free society, the rules of society themselves would be a “market phenomena” (the “good” would be the production of “law”, its subsequent enforcement, etc… ala David Friedman, Bruce Benson etc), so if it’s ok to say that my preference between vanilla and chocolate ice cream is subjective, why isn’t it ok to say that my preference for libertarian rules over communist rules is subjective and go from there?

Look, I’m an atheist. Should I be less of an atheist because I cannot quote every verse of the Bible? How much of each religion do I have to be an “expert” on before it is valid to say that I have reasons for going a different direction?

I’ve read far more on Austrian economics than I have religion, I can tell you that. Again, I often stand up for and expound on the insights of Austrian economics. But that doesn’t mean I can’t find fault with the parts of it that I think are at fault, right? I know you went to great lengths to explain to me that if I find a logical flaw in AE, you’ll listen, and no, that’s not my angle. My angle is to change the framing of the question. I’m not questioning the logic of AE, I’m questioning the concept of applying logic to a situation and the strength of the conclusions that one draws from that.

I’ve read a ton of Austrian economics, but I get stuck consistently with the same problems that I’ve attempted to describe to you, so I’m not going to be able to regurgitate it word for word. But that’s because to do so would mean accepting certain assumptions that I do not accept, e.g. that “man” or “acts” have been defined in a precise way, that the questions of whether we do anything but “act” have been addressed, etc.

Nice. Maybe you could throw in some more lols. You sure are showing me the light.

Maybe you could save the teenaged smarminess for someone, you know, *not* in liberty.me, that is, someone outside of our circle? This is liberty.me. It’s a community of folks here for a common interest, liberty. We should be working together to work towards our common interest, not acting like a Statist troll on a cnn page somewhere. Engage me intellectually or admit that you don’t know how, but throwing a bunch of lols around does you a disservice. You seem to take yourself seriously as a scholar given the number of articles you’ve written, I expected better from you.

Don’t come with the holier than thou attitude or confrontational demeanor and then be surprised when I don’t want to engage. Perhaps if it wasn’t combative from the very first comment I wouldn’t be reacting this way.

“You’ll either do X or you don’t know X”.

No. I just don’t want to devote time to someone who had has come off the way you have.

Post hoc ergo propter hoc. Its different when someone has not read Austrian economics before which I am receptive to.

Then there are those who have a combative and trolling demeanor who say they have read it thoroughly but ask questions on their fundamental principles that someone would know if they read it as much as they claimed to.

Hey, I realize this was a disastrous and unproductive dialog and that sucks for both of us, but it *is* liberty.me, so let us at least differentiate ourselves from the Statists and end on a decent note:

Oh, and if you’re still speaking to me: do *you* have a favored go-to reading suggestion that is relatively brief and clear (i.e. not hand-wavy) explanation/derivation of the basics we’re talking about here, e.g. “man acts” and the questions you said have been answered “numerous times”? I’ve asked quite a few folks and I’ve found the responses… lacking. More often than not, I’ve been pointed to Mises, but I’ll be honest, I find him difficult to read and very hand-wavy. If possible, I’d prefer a more modern writer/thinker, someone who has synthesized the writers over the decades.

The person who I have had the most conversations like this with – Stephan Kinsella – is a huge Hoppe fan. You probably ended up getting some of the frustration I have with Stephan and for that I apologize… it’s been a long, long series of discussions with him over several years that have just gotten more and more frustrating. If you don’t know him, you’d probably like his writing as you guys say a lot of the same things.

Is an act to satisfy the want to share that thought with others, to transition from the less satisfying state of not having said it to the more satisfying one of having said it.

Thus I take Jeff’s side here. If attempts at falsification prove the statement, then we have established its apodicity and any logically consistent axioms on top of it are correct also.

Let’s be clear, those axioms only take the form of declarations about the actor’s responses to situations and stimuli, their strategic priorities and so on, with fertile opportunity to describe, Sun Tzu-like, almost any facet of what we now call social science when talking about people’s rational/goal-oriented/future-oriented behaviour.

This blows my defence of praxeology out of the water. I guess that shouldn’t be surprising. I’m still hungrily devouring the works, essays using the method, and various angry critics of the school to get as much perspective on this beast as possible so I can really defend it and use it meaningfully in my life.

Thank you for writing so conclusively on the subject.

I want to run an awkward question by you, though, because I honestly see an empirical dimension to Praxeology.

Is it practical to say “empirical a priori” or “a priori empiricism”? My highschool philosophy education resolutely says ‘no’ but the thing is that even the praxeologicalist will find themselves employing the outside world in the scenarios facing the minds of the rational actors, whose strategising will be in response to factors external to their minds and so require cognisance on the praxeologist’s part of the external, at least insofar as it informs action.

If that was badly worded I’ll try to reformulate it. I think I got across that I’m asking whether “empirical a priori” is an oxymoron. I can’t help but feel it isn’t, that it’s actually an honest description of what praxeology really does and what makes it so ingenious for getting good answers to questions of goal-oriented behaviour.